There has been recent taxpayer and administrative outrage over the American International Group, Inc. (AIG) use of government bailout money to pay employee bonuses. There have been strong and widespread sentiments of dissatisfaction and rebuke for AIG’s actions after the company used $165 million dollars to pay the bonuses to its executives. This comes after receiving $170 billion dollars in government bailouts paid for with taxpayer dollars. Alongside continuing debate about the use of taxpayer funds for the purpose of bailing out private companies AIG’s actions have been perceived as a misuse of government bailout funds.
On March 16th, President Obama delivered a public address to small business owners and congressman in response to the news claiming AIG’s use of the funds irresponsible. Standing in front of the podium, he sternly asked, “I mean, how do they justify this outrage to the taxpayers who are keeping the company afloat?" AIG’s justification is that it had contractual obligations to make the bonus payments and, if it chose not to payout the bonuses, could face lawsuits. Evading breach of contract sounds reasonable but it has not been palatable for taxpayers and politicians that still claim AIG’s actions as ridiculous.
After a few days of mounting pressure from taxpayers, media, and politicians, AIG chairman and CEO Edward Liddy asked AIG executives to give back their bonuses on March 18th.
During this time of outrage there are several important points to consider. These three points prove this instance with AIG to be negligible.
1) It is important to compare the amount of government bailout funds provided to AIG and the amount of money paid out by AIG in executive bonuses.
2) It is important to remember that the government did authorize the bailout plan and still plans to continue printing billions of taxpayer dollars for the purpose of bailing out AIG.
3) It also should be noted that after receiving government bailout funds AIG has the right to utilize the funds in any legal manner they choose and, in this instance, the company is not being held accountable for violating any usage stipulations within the bailout plan but is only being chastised by those in disagreement with how they used the funds.
AIG only used a tiny fraction of the bailout dollars to payout executive bonuses. Look at the numbers: the government provided AIG $170 billion dollars and AIG used a mere $165 million dollars of it to payout bonuses and purportedly dodge contractual violations. After comparing the two figures to calculate the percentage of bailout money used, it’s clear that AIG only used 0.097 percent of the government bailout money to pay the bonuses. That means that 99.903 percent of the government bailout money provided to AIG is not being given widespread public scrutiny. That percentage translates to more than $16.9 billion dollars. The vast majority of taxpayer’s bailout funds to AIG are not even part of the present dialogue. Instead media coverage and attention is being dedicated to 0.097 percent of the bailout money, ignoring the bigger elephant in the room.
Despite AIG’s public scolding by President Obama and other government officials the government still plans to provide an additional $30 billion dollars in bailouts to the company. This will increase the total government bailouts for AIG to roughly $200 billion dollars. Administration officials are pushing for more stringent provisions in the use of the next $30 billion dollars in bailout money provided – a move that would be favorable to taxpayers and politicians concerned with the company’s financial decisions. But unless those provisions make expenditures such as bonuses a violation of the bailout’s stipulations, the company cannot be legally accountable for any wrongdoing in future instances of bonus payouts. Without violation of any law, AIG only has to contend with public sentiments, agreements and disagreements, none of which can hold AIG legally accountable without violation of any law. Legally speaking, AIG did nothing wrong.
In addition to not discussing the remaining 99.903 percent, the government was already privy to AIG's plan to payout bonuses months in advance. For that reason, the government's apparent outrage seems to be a sham. Their scrutiny is for the sake of appearing vigilant of corporate use of taxpayer dollars - a move that will help taxpayers feel that their money is under the watchful eye of the administration. The government is being very opportunistic in scrutinizing the mere 0.097 percent of the bailouts funds.
AIG can use government bailout funds in any legal way it deems useful. If it has not violated any law, how they use the funds may be analyzed at best and chastised at worse. The public can disagree but mere opinions from non-decision making personnel are not credible for conducting business operations. So although AIG chairman and CEO Edward Liddy decided to ask AIG executives to give back their bonuses, there was no legal reason for doing so. The move is a public relations strategy more than anything else. The government still plans to deliver the company $30 billion dollars more. The government, now owning roughly 80 percent of the company, is doubtful to publicly disseminate how AIG spends the soon-to-be $200 billion in bailout dollars. Their present outrage is opportunistic and substantive vigilance in the future will remain questionable. After all, their scrutiny has ignored the majority of taxpayer dollars provided to the company.